Allen bruised by the ads collapse

IF ANYONE had any doubt about the scale of the consumer downturn then they should take a look at what is happening to radio and TV advertising.

Hard on the heels of the 17% battering to advertising revenue reported by GCap media - the combined Capital Radio and GWR group - comes a similarly poor performance from Chrysalis, which reported that revenues fell 12.5% in March and April.

Not surprisingly, attention has now switched to ITV, the biggest beast in terrestrial commercial broadcasting. Reports from media planning networks suggest that revenue bookings for June could be 18% down on last year. If this is the case, then the renaissance seen in ITV's share price, which fell to 94½p last summer, could be short-lived.

The skill of Charles Allen, ITV's chief executive, is to make the best of rough times. He does this by controlling costs and winning the best deal from regulators. At present he is deep in negotiations with Ofcom about reducing the licence charges paid to Government. Savings of an estimated £90m are in sight.

But this can only be a short-term palliative when ratings and advertising are under pressure. Despite some new programming, such as the Colditz drama, ITV's main channel lost 10% of its audience in the first two months of the year.

ITV's travails, particularly as the share price continues to sink, are certain to rekindle takeover interest. Several private equity houses, including Apax in tandem with former BBC director- general Greg Dyke, are thought to be interested. If ITV, with a potential worth of £7bn, was too expensive for any one buyer then it might be possible to bring in another private equity house and a trade buyer.

The bid line-up for liquor firm Allied Domecq shows there are endless permutations once a company is put into play. There is no reason why ITV should be immune from such an outcome.

Spanish lament

ABBEY National investors who opted to take paper in Santander following last year's £9bn takeover now know a little more about the Spanish bank. Cost-cutting at Abbey is clearly a priority, with a further 1,000 jobs going at the British arm, in addition to the 3,000 redundancies foreshadowed at the time of the deal.

Santander is determined to bring the cost-income ratio at Abbey down from an overcooked 62% to the 40% or so achieved by High Street rivals like Halifax Bank of Scotland.

It is aiming to do this by eliminating back- office staff and installing updated IT systems. But Santander needs to be careful that in making this transition it does not alienate a loyal workforce or fall into the same trap as some of Britain's other banks where customer service has been sacrificed on the altar of cost reductions.

Abbey does not seem to have been put off by the weakness of the housing market in the first quarter, or fears that Britain's consumers are overstretched and should not be taking on new debt, whether well secured or not.

In the first quarter it improved its home loans market share from 8.4% to 8.8%. It is not clear whether this is something to boast about. Looking across the globe, one begins to understand why Santander has become interested in locking into stable and advanced markets like that of Britain.

It is struggling in Brazil, its largest Latin American investment, where profits fell slightly. One of the great risks for Abbey investors taking Santander paper was that they would be exposed to the Spanish bank's operations in a notoriously unstable financial region as well as the highly-personalised management style of the Madrid group.

Size allows financial institutions to keep imperfections under wraps.

Savings gap

MORE evidence that the economy is far from being a trouble-free zone comes from investment bank Morgan Stanley. It has lowered its central growth forecast for the economy this year to 2.2% (from 2.3% previously) against the Chancellor's own forecast of 3.25% to 3.5% - a substantial difference.

The main reason for the change is a more gloomy view of household consumption, which it believes will expand by just 1.7% this year. The broker argues that the UK is suffering from 'a range of imbalances and pressures' including insufficient saving, an overvalued housing market and a ballooning fiscal deficit. It will be critical to raise the household savings rate in the coming years from 6.6% this year to 8% in 2010.

The transition could mean several years of more moderate expansion than was seen in the early part of this decade.